Paper forthcoming in the Iowa
Law Review, available now
ssrn.com/abstract=2479569
Promoting Innovation
Spencer Weber Waller
Professor Loyola University Chicago School of Law
Director of the Institute for Consumer Antitrust Studies
Matthew Sag
Professor Loyola University Chicago School of Law
Associate Director of the Institute for Consumer Antitrust Studies
www.luc.edu/antitrust
Joseph Schumpeter and Competition
• Prominent and Prolific
Austrian and Harvard
Economist
• Deeply Influential and
Controversial
• Deemphasized Emphasis on
Perfect Competition and
Focused Instead on
Entrepreneurship and
Innovation
Schumpeter’s Key Insights
• Innovation is the key to long run
economic growth.
• Dominant firms have the resources
to fund R&D and innovation.
• Dominance is fleeting, creative
destruction is an ever-present threat.
▫ If all of the above is true, what are
the implications for laws regulating
the market place, such as antitrust
and intellectual property?
Schumpeter = Laissez Faire Antitrust?
• See, e.g.
 Ward S. Bowman, Jr., Toward Less Monopoly,
101 U. PA. L. Rev. 577, 623 (1953).
 F.M. Scherer, Antitrust, Efficiency, and Progress,
62 N.Y.U. L. Rev. 998, 1001 (1987) (under Schumpeter
antitrust may not “particularly important”)
 Harold Demsetz, How Many Cheers for Antitrust's 100
Years?,
30 Econ Inquiry 207 (1992)
 Glen O. Robinson, On Refusing to Deal with Rivals,
87 Cornell L. Rev. 1177, 1180 (2002)
 Keith W. Hylton & Haizhen Lin, Innovation and Optimal
Punishment, with Antitrust Implications,
10 J. Comp. L. & Econ. 1 (March 2014)
Beyond Laissez Faire, Towards a Real
Schumpeterian Antitrust Policy
• Creative destruction may be irresistible over the long run
• But there is much that incumbent firms can do in the
short to medium term to suppress disruptive innovation.
[T]here are means available to the successful
entrepreneur – patents, ‘strategy’, and so on – for
prolonging the life of his monopolistic or quasimonopolistic position and for rendering it more
difficult for competitors to close up on him.
– JOSEPH A. SCHUMPETER, HISTORY OF ECONOMIC ANALYSIS 897-98
(Elizabeth Boody Schumpeter ed. 1954)
Our Proposal for Antitrust Policy in a
Schumpeterian Light
• We should regard innovation and creative
destruction as a two-stage sequence rather than a
single-stage operation.
• Maximize incentives and opportunities for
challengers to innovate to displace incumbents
• Minimize incentives and opportunities for
incumbents to engaging in exclusionary conduct
aimed at preventing/forestalling creative
destruction.
Balance Required
• “[t]he successful competitor, having been urged
to compete, must not be turned upon when he
wins.”
 Judge Learned Hand, United States v. Aluminum
Co. of America.
• “we should not allow the current frontrunner in
a race to declare permanent victory at the
moment of his choosing.”
 Waller & Sag, Promoting Innovation, 100 Iowa Law
Review, __ 2015
Schumpeterian Perspective also Includes
Policies Beyond Traditional Competition
Law
Competition
Law
Net Neutrality
Access to
Infrastructure
Sectoral
Regulation
Intellectual
Property Law
Application
•
•
•
•
•
Unilateral Conduct Cases
IP/Antitrust
Section 1 Cases
Merger Review
Competition advocacy
Addressed in much
more detail in the
paper
• Our broader point: Current U.S. Policy is Broadly
Consistent with Such a Focus on Innovation
Current U.S. Policy Broadly Consistent
with Such a Focus on Innovation
• Abandonment of Criminal Monopolization
Enforcement
• Little Government Use of Attempted
Monopolization
• Few Government Cases on How Firm Gained
Monopoly Power
• Language in Trinko
• Most Focused on Monopoly Maintenance
• Microsoft as Road Map
Many Definitions of Innovation
• McGowan – change to the status quo that
1) allows one to do something one could not
before or
2) allows one to do something already possible
while using fewer resources than before.
Microsoft as Case Study
• No Effort to Challenge Microsoft’s Acquisition of
Monopoly Power
• “It is certainly true that Windows may have gained
its initial dominance in the operating system market
competitively – through superior foresight or
industry.”
• Equally possible that Microsoft gained dominance
through sheer luck when IBM choose to focus on
hardware rather than software but not on
Government’s case in either event.
• Neither Problematic from an Antitrust Point of View
Microsoft as Monopoly Maintenance
• Case Focused Instead on What Microsoft Did to Maintain its
Dominance in Face of Actual and Potential Competitive
Threats
▫ Netscape
▫ Java
• Attempted Monopolization Claim of Internet Browsing
Market Rejected
• Great Deference to Product Design and Innovation
• Government Prevailed Where Microsoft Failed to Support
Any Legitimate Pro-Competitive Justification
• Microsoft Won on Any Count Where it had such a
Justification
• Relief Behavioral and Nuanced in Part to Preserve Innovation
and Hard Competition Even by Dominant Firm
The E-Book Case
• Successful Civil Per Se Section 1 Case by
Government Against Traditional Publishers and
Apple
• Defendants Seeking to Change Pricing Policies and
Increase Prices of E-Books
• Controversial in US and EU Because of Market
Power of Amazon in E-Books and Reader Market
• Looks Less Controversial When Seen through
Schumpeterian Lens of Old Industry Seeking to
Preserve its Business Model From Continued Threat
of “Creative Destruction” of E-Books
Innovation and Future Cases and
Investigations
• Google
▫ US
▫ EU
• Facebook and Social Media
Not Everything is Innovation
• Not Arguing that only Innovation Cases Should
be Brought
• Plenty of Good Reasons to Bring Sound
Traditional Cases
▫ Cartels
▫ Unilateral Conduct
▫ Mergers
• But Remember Values of Innovation Likely to
Dwarf Preservation of Consumer Surplus in
Most Instances
More a Matter of Priorities Than
Doctrine
• Worth Multiple Challenges to Small Unreported and Consummated
Mergers?
• Need Long-Term Perspective on Value of Innovation
▫ Incremental Innovation by Incumbent Versus Disruptive Innovation by
Challengers?
▫ What if trivial innovation versus massive exclusion?
▫ How can we tell?
• Careful Use of Competition Advocacy Vital
▫ North Carolina Dental Board
▫ Uber
▫ What if you Could Only Choose One?
• Less Enforcement?
▫ Baby Food
▫ Sulfuric Acid
• Private Enforcement
For More Information Contact
• Spencer Weber Waller
• Professor and Director Institute for Consumer
Antitrust Studies
• Loyola University Chicago School of Law
• swalle1@luc.edu
• www.luc.edu/antitrust
• Matthew Sag
• Professor and Associate Director Institute for
Consumer Antitrust Studies
• Loyola University Chicago School of Law
• msag@luc.edu
• www.luc.edu/antitrust